According to the Oil and Gas Journal, as of January 1, 2006, Iran held 132.5 billion barrels of proven oil reserves. This figure, which includes recent discoveries in the Kushk and Hosseineih fields of Khuzestan province, means Iran holds roughly 10 percent of the world's total proven reserves. The vast majority of Iran's crude oil reserves are located in giant onshore fields in the southwestern Khuzestan region near the Iraqi border. Overall, Iran has 40 producing fields – 27 onshore and 13 offshore (see table below for major fields). Iran's crude oil is generally medium in sulfur and in the 28°-35° API range. 

 

 

 

 

During 2005, Iran produced about 4.24 million bbl/d of total liquids. Of this, 3.94 million bbl/d is crude oil, roughly 5 percent of world crude production. Iran's current sustainable crude oil production capacity is estimated at 3.8 million bbl/d, which is around 310,000 bbl/d below Iran's latest (July 1, 2005) OPEC production quota of 4.110 million bbl/d. Through the first half of 2006, the EIA places Iran’s crude oil production at 3.75 million bbl/d. Iran's domestic oil consumption, 1.5 million bbl/d in 2005, is increasing rapidly as the economy and population grow. Iran subsidizes the price of oil products heavily, which contributes to rising domestic consumption.

 

Iran's existing oilfields have a natural decline rate estimated at 8 percent onshore and 10 percent per year offshore. The fields are in need of upgrading, modernization, and enhanced oil recovery (EOR) efforts such as gas reinjection. Current recovery rates are just 24-27 percent, compared to a world average of 35 percent. Iran also needs to increase its search for new oil, with only a few explorationwells being drilled in 2005.

 

 

 

 

With sufficient investment, Iran could increase its crude oil production capacity significantly. The country produced 6 million bbl/d of crude oil in 1974 but has not come close to recovering to that level since the 1978/79 Iranian revolution. Still, Iran has ambitious plans to increase oil production to more than 5 million bbl/d by 2010, and 8 million bbl/d by 2015. The country will require billions of dollars in foreign investment to accomplish this.

 

Exports

Currently, Iran exports around 2.5 million bbl/d of oil, of which OECD countries import 60 percent (or 1.6 million bbl/d). Iran's main export blends include Iranian Light (34.6° API, 1.4 percent sulphur); Iranian Heavy (31° API, 1.7 percent sulphur); Lavan Blend (34°-35° API, 1.8-2 percent sulphur); and Foroozan Blend/Sirri (29-31° API). 

 

 

 

Crude Swaps

Iran's desire to become a player on the Caspian oil front has led it to push forward in the area of oil "swaps." This arrangement involves the delivery of Caspian oil to refineries, via the Caspian port town of Neka in northern Iran, for local consumption (See map below). An equivalent amount of Iranian oil is then exported through Persian Gulf terminals such as Kharg Island. Shippers normally pay a "swap fee" of $1.50-$2.00 per barrel, with swaps handled by Naftiran Intertrade Co. (NICO), the Swiss-based trading arm of  National Iranian Oil Company (NIOC). Crude swaps have increased rapidly in recent months, with a July 2006 report by the Oil Export Terminals Company placing the level at 130,000 bbl/d. As recently as June 2006, Abdolrahman Kheylai, Manager of NIOC’s Neka Oil Products Export Terminal, stated that average daily Caspian exports to Iran were about 117,000 bbl/d, consisting mainly of Turkmen and Kazakh oil. The surge in crude swaps is attributed to higher oil prices and the increased willingness of the Caspian Sea littoral states to offer oil in the form of direct sales.

 

Currently, from Neka, just over 40,000 bbl/d of import oil is sent to Tehran by the existing 180,000-bbl/d capacity Neka-Tehran pipeline, and roughly 80,000 bbl/d is sent to Tebriz. Eventually, Iran hopes to upgrade its facilities in order to greatly expand oil swaps capacity first to 370,000 bbl/d and then to 500,000 bbl/d. Iran further intends to increase storage capacity at the terminal from 1.5 million barrels to 2.5 million barrels. As a further part of Iran’s efforts to compete on costs with the 1-million-bbl/d Baku-Tbilisi- Ceyhan (BTC) pipeline, Mr. Kheylai reported that Iran plans to build a submerged turret offshore oil loading terminal in the Caspian Sea. The technology offers a flexible and cost-effective solution for mooring of vessels applied as shuttle tankers or storage vessels. Mr. Kheylai stated that while currently 7,000 deadweight (dwt) tankers can bring Caspian oil to Neka, the new turret will be able to service up to 63,000 dwt tankers.

 

In July 2005, Iran and Iraq signed an MOU on a swap agreement involving construction of a 24-mile, 350,000-bbl/d oil pipeline from Basra to the Abadan refinery in southwestern Iran. In exchange, Iran would ship refined products back to Iraq. In addition, Iran could allow Iraq to export crude through the Kharg Island terminal and to import refined products through the Iranian port of Bandar Mahshahr.

 

Export Terminals

Iran exports crude oil via four main terminals: Kharg Island (by far the largest), Lavan Island, Sirri Island (reopened on April 13, 2003 for the first time since 1988, when it was damaged by an Iraqi air raid), and Ras Bahregan. Refined products are exported via the Abadan and Bandar Mahshahr terminals. Many Iranian oil export terminals were damaged during the Iran-Iraq War, but all have been rebuilt. Iran operates OPEC’s largest oil tanker fleet, comprising roughly 29 ships, including Very Large Crude Carriers (VLCCs). The fleet is run by the National Iranian Tanker Company, which is a subsidiary of NIOC. In 2003, Iran commissioned six vessels for Caspian routes, to promote Iran’s position as a transit option for regional crude, along with 12 LNG tankers.

 

 

Upstream Projects

State-owned National Iranian Oil Company (NIOC)'s onshore field development work is concentrated mainly on sustaining output levels from large, aging fields. Roughly 60 percent of Iran’s oil production comes from fields more than half a century old , with some dating back to the first oil discoveries in the Middle East . Consequently, EOR programs are underway at a number of fields, including Marun and Karanj.

 

In February 2004, a Japanese consortium led by Inpex signed a final agreement on the $2 billion Azadegan oilfield development project. Azadegan was discovered in 1999, representing Iran's largest oil discovery in 30 years. It is located onshore in the southwestern province of Khuzestan, a few miles east of the border with Iraq. Reportedly, Azadegan contains proven crude oil reserves of 26 billion barrels, but the field is also considered to be geologically complex, making the oil more challenging and more expensive to extract. In January 2001, the Majlis approved development of Azadegan by foreign investors using the so-called "buyback" model (see below). Inpex, which has no upstream experience of its own, has brought in Total on the project for its technical expertise. Initial production of medium-sour crude oil from Azadegan could come in 2009, ramping up to 160,000 bbl/d by 2012 and 250,000 bbl/d by 2014/15. At its peak, Azadegan production could account for as much as 6 percent of Japan's oil imports. However, little forward progress has been made on Azadegan, including the lack of an operating agreement with NIOC. In September 2005, Iran sharply criticized Japan for the slow progress. Japan maintains that further clearing of mines leftover from the Iran-Iraq war is needed for work to go forward and that because of an increase in the price of field development tools, notably steel, the contract should be revised. Iran claims the field is 96 percent clear of mines and has threatened to develop the field themselves if a final agreement is not reached by September 2006 .

 

In February 2001, NIOC announced the discovery of a very large offshore oil field, named Dasht-e Abadan, in shallow waters near the port city of Abadan. According to a top NIOC official, Dasht-e Abadan could contain reserves "comparable" in size to Azadegan.

 

Since 1995, NIOC has made several other sizable oil discoveries, including Darkhovin onshore oilfield. Located near Abadan, which contains low sulfur, 39° API crude oil. In late June 2001, Eni signed a $1 billion, 5 1/2-year buyback deal to develop Darkhovin, with the added incentive of a limited risk/reward element that linked payment to production capacity. Darkhovin came online at 50,000 bbl/d in July 2005, with production expected to reach 160,000 bbl/d in 2007.

 

Another oil discovery in western Iran was made recently by Norsk Hydro, the Anaran field, which contains reserves of 2 billion barrels. According to Norsk Hydro, Anaran could produce more than 100,000 bbl/d of oil, possibly starting in 2010. Lukoil is a minority partner in the field. Reportedly, development of Anaran is complicated by the need to clear landmines in the area.

 

 

NIOC also would like to develop five oil and natural gas fields in the Hormuz region: Henjam A; the A field near Lavan Island; the Esfandir field near Kharg Island; and two structures near the South Pars natural gas and condensate field. Iran and Oman have discussed the possibility of joint development of the Henjam A field. According to NIOC, the five Henjam fields hold an estimated 400 million barrels of oil and have a production potential of 80,000 bbl/d. Other Iranian oil fields slated for increased development include Doroud, Nosrat, Farzam, and Salman.

 

As a further part of Iran’s expansion efforts, in May 2006, the head of Petroleum Engineering and Development Company (PEDEC), Mehdi Bazargan, said that Iran will tender the development of 10 additional oilfields in its oil-rich southern provinces, including the Parsi, Shadgan, Pazenan, Gachsaran, Karanj, Northern Azadegan, Jofair, Marun, and Mansuri fields. According to Mr. Bazargan, the development of the fields will require roughly $7 billion dollars of investment.

 

Storage Capacity

In June 2006, NIOC Managing Director Gholamhossein Nozari said that crude oil storage capacity at Kharg Island, the country’s largest export terminal, had been increased over the past six years from 7 million barrels to 12 million barrels. He added that Iran has begun a $218 million expansion program to raise the terminal’s storage capacity to 22 million barrels. According to Mr. Nozari, Iran’s immediate aim should be to increase storage capacity to 10 - 15 days worth of exports, and in the longer term to 30 - 35 million barrels.

 

In April 2006, the Fars News Agency reported that NIOC planned to begin construction during 2006 of strategic crude oil storage tanks in a number of producing regions, with a total capacity of 10 million barrels. Construction costs are estimated at $1.165 million. NIOC had previously announced plans to construct 15 crude oil storage tanks at the following locations: four tanks at Ahwaz with total capacity of 2 million barrels of crude oil; three tanks at Omidiyeh with total capacity of 3 million barrels; six tanks at Goureh with total capacity of 4 million barrels; one 500,000 barrel tank on Sirri Island; and one 500,000 barrel tank at Bahregansar.

Offshore Developments

The Doroud 1&2, Salman, Abuzar, Foroozan, and Sirri fields comprise the bulk of Iran's offshore oil output. Iran plans extensive development of existing offshore fields and hopes to raise its offshore production capacity significantly.

 

In late 2001 and early 2002, Shell brought part of the $800 million Soroush-Nowruz development online. The two fields are located offshore, about 50 miles west of Kharg Island, and contain estimated recoverable reserves of around 1 billion barrels of heavy oil (20° API). The heaviness and high sulfur content (3 percent) of the oil has made marketing Soroush-Nowruz oil difficult; in 2005 and again in the second quarter of 2006, Iran reportedly diverted Soroush-Nowruz production into storage rather than try to sell the oil at a steep discount. In addition, production has been limited to 27,000 bbl/d at Nowruz and 60,000 bbl/d at Soroush, despite goals of 57,000 and 65,000 bbl/d, respectively. In an attempt to sell more of Nowruz/ Soroush crude, NIOC has recently begun blending the crude with South Pars condensate. The combined batch is then being fed into the Bandar Abbas refinery for domestic consumption. In July 2006, Iran reported that it had processed 2 million barrels of Soroush and Nowruz crudes at Bandar Abbas. In May 2006, NIOC secured a 60,000 bbl/d term contract for Nowruz/ Soroush crude with India’s Reliance.

 

Another area believed to have significant potential is offshore near Bushehr, where Iran claimed in July 2003 to have discovered three fields with potential reserves of 38 billion barrels of oil. In March 2004, the Iranian Offshore Oil Company (IOOC) awarded a $1.26 billion contract for recovery of NGLs and natural gas from Soroush, Nowruz, Foroozan, and Abuzar to Japan's JGC Corporation. Ethane from the gas will feed an ethylene complex at the Kharg petrochemical complex. Elsewhere, in May 2004, Brazil's Petrobras signed a 3-year, $32-$34 million deal to develop the Tousan fields of the Persian Gulf.

 

Caspian Sea Region

Aside from acting as a transit center for other countries' oil and natural gas exports from the Caspian Sea, Iran has potentially significant Caspian reserves of its own. Currently, Iran has no oil or natural gas production in the Caspian region. In early 2004, a 3-D seismic survey of the southern Caspian was conducted by Iran's Oil Survey Co.; the work yielded a number of potentially prospective blocks, including Blocks 6, 7, 8 and 29. In June 2006, Masoud Jahdi, Director of the state-run Caspian Sea Exploration Company, stated that Iran has completed 3D seismic work of 1,550 sq mile of the sea, and a further 11,580 sq miles has been swept in 2D surveys. According to a 1998 study by Eni, Shell and KEPCO, the Iranian sections of the Caspian Sea have significant potential. A tender for exploration is expected to follow after the seismic work is complete. Among the foreign firms that have indicated their interest in the area are Statoil, Norsk Hydro, Petrobras, Petronas and CNOOC.

 

At the present time, Iran continues to maintain that regional treaties signed in 1921 and 1940 between Iran and the former Soviet Union, which call for joint sharing of the Caspian's resources between the two countries, remain valid. Iran has rejected all unilateral and bilateral agreements on the utilization of the Sea. As such, Iran is insisting that either the Sea should be used in common, or its floor and water basin should be divided into equal (20 percent) shares. Under the so-called "condominium" approach, the development of the Caspian Sea would be undertaken jointly by all of the littoral states. However, using the equidistant method of dividing the seabed on which Kazakhstan, Azerbaijan, and Russia have agreed, Iran would only receive about 12-13 percent of the Sea. As yet, no agreement has been reached among all Caspian Sea region states on the legal status of the area.

 

Refining

According to Oil and Gas Journal, Iran has a combined capacity of 1.64 million bbl/d. Major refineries include: Abadan (400,000-bbl/d capacity); Isfahan (265,000 bbl/d); Bandar Abbas (232,000 bbl/d); Tehran (225,000 bbl/d); Arak (150,000 bbl/d); and Tabriz (112,000 bbl/d). Gasoline demand is forcasted to be growing at around 11.4 percent per year. Iran plans to increase its refining capacity to 2.54 million bbl/d by 2010. One goal of this expansion is to allow Iran's refineries to process a heavier crude slate, while decreasing the fuel oil cut. Currently, Iran's refineries produce around 30 percent heavy fuel oil and just 16 percent gasoline. In addition, diesel sulfur levels are slated for a major reduction from 500 parts per million to 50 ppm by 2010, requiring significant additional hydrotreating capacity.

 

The National Iranian Oil Refining and Distribution Company (NIORDC) plans to begin construction work as early as September 2006 on three units aimed at increasing gasoline production from the Isfahan refinery. Currently, technical proposals are being reviewed for the construction of three units: a 32,000 bbl/d continuous catalytic reformer (CCR) unit; a 27,000 bbl/d isomerization unit; and a 62,000 bbl/d hydrotreater. Construction is expected to cost $300 million. NIORDC is negotiating with bidders to reduce construction time from 36 months to 30 months.

 

In June 2004, Japan's JGC reached an agreement with Iran to expand Arak to 250,000 bbl/d by 2009. In addition, in 2005 it was announced that a new 180,000-bbl/d-capacity refinery is being planned for Abadan. Bandar Abbas is being expanded in several phases and is on schedule to meet goals of adding around 250,000 bbl/d of capacity by 2010. Two planned grassroots refineries include a 225,000-bbl/d plant at Shah Bahar and a 120,000-bbl/d unit on Qeshm Island. Under Iranian law, foreign companies are permitted to own no more than 49 percent of Iranian oil refining assets.

 

Iran plans to boost capacity at its northern refineries at Arak, Tebriz, and Tehran in order to process additional Caspian oil. In August 2003, a $500 million tender was issued to upgrade the Tehran and Tabriz refineries in order to handle 370,000 bbl/d of high sulfur Caspian crude. This follows a $330 million project, completed by a Sinopec-led consortium in late 2003, to expand storage at Neka and to upgrade the Tehran and Tabriz refineries.